Kickbacks Heighten Government Scrutiny

Lawrence Lloyd

February 1, 2007

3 Min Read
Kickbacks Heighten Government Scrutiny


Last July, Medtronic Inc. agreed to pay $40 million to settle civil litigation arising from its alleged kickbacks to doctors. Several whistle-blower lawsuits claimed that between 1998 and 2003, the company's Medtronic Sofamor Danek (MSD) division created fraudulent consulting and royalty agreements and supplied lavish vacation packages to doctors who used MSD's spinal products. One surgeon was paid $400,000 annually for a consulting arrangement that required him to work only eight days a year. Medtronic allegedly paid another surgeon almost $700,000 for nine months of work.

But it's not as if Medtronic was the only company suspected of paying illegal kickbacks. A state-run medical school in New Jersey billed Medicare and Medicaid about $36 million in fraudulent charges. A selection of doctors were also paid $5.7 million for no-show teaching jobs. Oxygen equipment supplier Lincare Inc. (Clearwater, FL) settled for $10 million over recent allegations of kickbacks, including providing advertising expenses, food, entertainment, and sports equipment and services. Multi-million-dollar settlements for these activities are sure to have ripple effects throughout the industry—especially for future consulting arrangements.

These cases have prompted the government to increase its scrutiny of the medical device industry with respect to kickbacks. Companies discovered distributing illegal perks for consulting and other services might be forced to jump through several hoops before things even begin to go back to normal. Medtronic, for example, has been forced to enter into a Corporate Integrity Agreement with the U.S. Office of the Inspector General (OIG). The agreement requires the company to designate a compliance officer, create a compliance committee, develop and disseminate a code of conduct, and strengthen policies to prevent fraudulent actions in the future.

And there's more. The policies must include a safeguard to track payments the company makes to outside parties to ensure that people are being paid for services actually provided. Under the agreement, Medtronic also has to develop a training program for its employees to teach them about federal antikickback laws and its own sanctions for violating them. Finally, the company must train independent distributors of its products on antikickback statutes.

Although the kickbacks may cross several ethical and conflict-of-interest boundaries, patients and other parties are not always concerned. A recent study published in the New England Journal of Medicine, for example, revealed that most cancer patients in experimental drug studies do not care about financial conflict-of-interest issues between the doctor and drug maker. The same researchers also discovered in a survey of institutional review board members that 40% of them did not know whether the board on which they served had a formal definition of conflict of interest. With most medical centers and research universities having ties to life sciences companies, navigating the gray area of perks and kickbacks has never been so crucial.

Medical device companies are going to have to be that much more careful to keep from running astray of federal guidelines. Consulting arrangements need to be carefully examined to ensure that people are being paid for services actually provided, and that consultants are chosen for their knowledge in a particular area rather than how amenable they are to prescribing or recommending certain products. AdvaMed's Code of Ethics offers guidelines for medical device companies' consulting arrangements with regard to meals, agreements, meetings, and gifts. Although it was created in 2003, it has since been updated to provide more guidance on corporate ethics. Most recently, AdvaMed officials have been in contact with OIG about physician–device firm arrangements with respect to the antikickback statute.

In addition, a new law effective January 1 requires that all companies that do at least $5 million annually in Medicaid business educate their employees on how to detect fraud and waste. Healthcare providers must also tell their employees that they will be protected from retaliation if fraud is reported and that whistle-blowers are often entitled to a percentage of settlements paid to the government. The new rules apply across the spectrum of medicine, including to medical device and equipment suppliers.

Copyright ©2007 Medical Device & Diagnostic Industry

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